In 1976, Vanguard launched its 500 Index Fund, making it the first index mutual fund available to non-institutional investors. The creation of an index fund intended for individual investors was an important salvo in the now long-running battle over which investing approach—active or passive—is superior.
This is a 35-year-old fight (at least) that I certainly don’t think I can settle. But in discussions of the issue over the years, I’ve found that a few points are really critical, and often not appreciated by more casual participants.
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Well, at least Dilbert’s creator, cartoonist Scott Adams, thinks that indexing makes more sense for most investors than picking individual stocks.
In characteristic overstatement, he suggested on his blog that someday it could be illegal for individuals to buy individual stocks, given the harm they might do themselves. He argued that the odds of beating the market are so slim that picking individual stocks is a form of gambling.
Not surprisingly, his musings drew critics. In a follow-up posting on the criticisms, “Warren Buffett and You”, Mr. Adams noted that some writers pointed out that Warren Buffett’s track record proves that individuals can succeed in beating the market.
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